A 0 percent APR credit card can be a great financial tool, but there are debt traps to be aware of when using one. Always make the minimum payments on your credit card to avoid consequences like late fees, damaged credit and penalty APRs.
If you have no balance on your credit cards, your credit utilization ratio is zero, which could negatively impact your credit score. The exact impact on your credit score will depend on various factors such as your overall credit history and the other factors that go into calculating your credit score.
Credit cards with 0% interest on purchases can be a good way to spread cost and build up your credit score. For example, you could use one to book flights, pay for a holiday or cover the cost of home improvements and then pay it back in monthly repayments.
Key takeaways
A credit card with an introductory 0 percent APR can help you manage new debt or pay off old balances. However, a 0 percent intro APR card can hurt your credit if it causes you to carry a higher balance than usual or if you carry your balance beyond the introductory offer period.
In short, no, it isn't bad to have a zero balance on your credit card. Or, put another way, yes, it's okay to have no balance on your credit card; it can even help your credit score.
The interest rate you pay on your credit card doesn't directly impact your credit score. However, choosing a 0% credit card can help you pay your debts off faster because all the payments you make during the interest-free period go towards clearing your balance. And less debt generally means a higher credit score.
When your intro APR ends, your credit card's regular APR will kick in on any remaining and new balances. Knowing when your promotional period ends helps you pay off your balance beforehand and keeps you from being surprised by mounting interest on a residual balance.
Key takeaways
A 0% introductory APR card can help you pay off a large purchase over time without interest. These cards can also help you consolidate debt and pay it down faster — if you're willing to pay a balance transfer fee and stay disciplined in how you use them.
Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club.
It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.
Lenders consider your credit utilization when making lending decisions because it represents how well you're managing your existing debts. In general, lenders look for a credit utilization ratio of 30% or less. Having a ratio higher than this can signal you're using too much of your available credit.
Choosing to take out a 0% financing loan may not be a good idea if: You have a lower credit score or shorter debt repayment history. You can't support regular car payments for four or more years. You can't contribute a 20% down payment to the car in question.
Your 0% APR deal could be canceled
Even with a 0% APR card, you'll still have to make monthly minimum payments — usually a small percentage of your balance. And if your payment is late, even by a single day, your card issuer could cancel the 0% offer and reset your card's interest rate to the ongoing APR.
Many manufacturers and dealerships advertise no-interest car loans. These loans are offered through captive finance companies, which the manufacturer owns, and are used to attract prospective buyers. As car loan interest rates soared over the past few years, no-interest car loans became a better and better deal.
It Could Affect Your Utilization Rate
However, if you have a 0% APR offer on a credit card, you may be more inclined to let your balance grow. Your utilization rate will then increase, which might hurt your scores. In general, aim to keep your utilization rate under 30% to avoid negatively affecting your scores.
It's generally recommended that you have two to three credit card accounts at a time, in addition to other types of credit. Remember that your total available credit and your debt to credit ratio can impact your credit scores. If you have more than three credit cards, it may be hard to keep track of monthly payments.
0% intro APR cards require good to excellent credit
This means you'll need a FICO credit score of at least 670 or a VantageScore credit score of at least 661. If you have very good or excellent credit, which means a FICO score of at least 740 or a VantageScore of at least 781, your chances of approval are even higher.
You've closed previous accounts
Credit utilization is your balance-to-credit ratio, so if you close an account, your credit ratio decreases. Credit age also plays a part in your credit score. Length of credit history accounts for 15% of your FICO score.
Experts suggest keeping credit utilization at less than 30 percent to maintain good credit, however, those with excellent credit keep it below 10 percent. Lower your credit utilization by paying off revolving debt, requesting a higher credit limit, performing a balance transfer or applying for a new credit card.
Reasons why your credit score could have dropped include a missing or late payment, a recent application for new credit, running up a large credit card balance or closing a credit card.
There are some differences around how the various data elements on a credit report factor into the score calculations. Although credit scoring models vary, generally, credit scores from 660 to 724 are considered good; 725 to 759 are considered very good; and 760 and up are considered excellent.